Debt Recovery

Can Bankrupts be Company Directors?

The Corporations Act provides that undischarged bankrupts or those who have entered into personal insolvency agreements under Part X of the Bankruptcy Act (whether in Australia or another country) cannot act as a director of, or take part in the management of, a company.

Court can grant leave

The Court can however grant leave to an undischarged bankrupt to take part in management of a company and such leave can be granted either with or without conditions. Australian Securities and Investments Commission must be notified of any such application (so ASIC can intervene if required).

The applicant will bear the onus of establishing that the Court should make an exception to the legislative policy behind the prohibition (to protect the public). The court will not easily be convinced that the usual prohibition should not apply and will exercise its discretion with a view to balancing the considerations relevant to the bankrupt and the underlying public policy.

Leave will not be granted where the disqualification was imposed by ASIC (as opposed to an automatic disqualification due to the operation of the Corporations Act).

What is considered?

Hardship to the proposed director is not of itself a persuasive ground for the granting of leave however, it is one of many factors which may be considered by the court in exercising its discretion including the reason for the disqualification, the nature of the bankrupt’s involvement, the general character and conduct of the applicant in the intervening period since being removed from or prevented from being in office, the structure of the company, its business and the interests of shareholders, creditors and employees.

Although such applications are not commonplace, an undischarged bankrupt may be granted leave to take part in the management of companies generally or, more frequently, in the management of a particular company.

Penalties

The disqualification imposed by the Act continues despite the Court granting leave and care must be taken to ensure that any conditions on the leave are complied with as failure to do so can result in the leave being revoked and an offence then being committed and the penalty can include a significant 50 penalty unit fine and/or imprisonment for 12 months.

Bankruptcies generally last 3 years. You can check if someone is an undischarged bankrupt by checking the Australian Financial Security Authority’s Bankruptcy Register 

FURTHER INFORMATION

For further information in relation to bankruptcy, insolvency or company matters, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn Facebook Twitter | Instagram

What is a lien?

A lien is the right of a person or business to hold or retain possession of an item as security for performance of an obligation owed by another, such as the payment of monies owed.

Liens only apply to physically transferable items of personal property and effectively act as an informal or unregistered form of security for payment.

Liens only arise if the item was given to the lien holder with the express or implied authority of the owner (such as the owner or driver of a vehicle) and generally won’t arise over stolen property.

A lien does not arise simply by simply performing work.  There must be a basis for a lien to arise such as a contractual right, a piece of legislation or operation of the law.

There are 4 types of liens, each of which we discuss briefly below:

  1. statutory;
  2. contractual;
  3. common law (or possessory); and
  4. equitable.

In all but the latter of the categories, maintaining actual possession of the property in question is crucial as the rights afforded to the lien holder are only applicable while the lien holder is in possession of such property.

Statutory liens

Statutory liens arise through the operation of specific pieces of legislation such as those in Part 5 of the Sale of Goods Act 1923 (NSW), the Storer’s Liens Act 1935 (NSW) etc.

The relevant Acts describe the terms of the liens created by those statutes.

Contractual liens

If the terms of agreement, terms and conditions of trade or similar document that governs the rights and obligations of the parties to a contract provide for a lien, then such a lien is a ‘contractual lien’.

The operation of the lien is the same however – there must be money or some obligation owed and an item of the other party held pending payment or performance of that obligation.

Common law liens

At common law, liens can either be ‘particular’ or ‘general’ (also known as ‘specific’) and arise by implication of law.

A ‘specific lien’ secures obligations that are incurred in respect of the particular goods that are held.  A common example of a specific lien is the ‘mechanic’s lien’ – the right to hold your car until you have paid for the work performed or a repairer’s lien for payment in respect of improvement work done on a chattel.

A ‘general lien’ however is more favourable, although far less common and more difficult to establish. A general lien allows a person to retain possession of any goods held (but not sell or otherwise deal with that property) until all sums payable by the owner of the goods are satisfied, not just the amount payable in respect of work performed on the specific goods held hostage.

General liens must be established by strict proof of custom or usage such as a ‘solicitors’ lien’ or an ‘accountant’s lien’ which allows a solicitor or accountant to assert a lien over and thus retain a client’s documents (or the fruits of a court action) until payment of all debts owed by the client. It is effectively an implied term of the relevant contract.

Equitable liens

Equitable liens are created on a case by case basis by the law of equity as determined by the Courts. Judges may declare such liens so as to uphold or preserve fairness or justice to a situation having regard to the parties’ dealings and conduct.

An example is where a party spends money improving the item for another where there was either express or implied agreement that the performing party should have an interest in the enhanced property. The party who performed the work and is owed the debt may then acquire an equitable interest in the property proportionate to the value of the enhancement.

Unlike the other types of liens, ‘equitable liens’ do not require actual possession of the article in question. Such liens can be voided by the express or implied agreement of the parties.

Consideration often needs to be given to the value of the lien compared to the substantial time and monetary cost of seeking judicial intervention.

How does a lien end?

Any right to assert a lien (other than an equitable lien) expires upon performance of the outstanding obligation (such as payment) or upon release if the item over which the lien is maintained as without possession, there is no lien.

How does the PPSA affect a lien?

Statutory liens and common law liens can be exempted from the operation of the Personal Properties Securities Act 2009 (Cth) (PPSA).

In some circumstanced, the party asserting the lien can have priority over any security interests registered on the Personal Property Securities Register (PPSR) held by other creditors of owner of the item if:

  • the materials/services were provided in the ordinary course of business by the person asserting the lien;
  • no other Act prevents the lien from having priority; and
  • the holder of the lien did not have knowledge of any security agreement under the PPSR relating to those goods (that prohibited the creation of the lien).

Security interests registered on the PPSR under the PPSA will usually defeat any contractual lien.

FURTHER INFORMATION

For more information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au to discuss your needs.

This information is general only and is not a substitute for proper legal advice.

Stay up to date – LinkedIn Facebook Twitter | Instagram

Enforcing judgments overseas (and vice versa)

The success of enforcing judgments overseas will largely depend on the laws of country where the judgment is sought to be enforced. Sometimes the common law or a treaty allows enforcement but often it relies on a statutory arrangement.

Australia has reciprocal arrangements with various countries but as a general rule, to be enforceable in another jurisdiction, the judgment must be:

  • for a fixed sum;
  • consistent with the laws or public policies of the relevant country; and
  • final and conclusive, and

you must provide a verified copy of the original Australian judgment, a translation of the judgment into the relevant language, an affidavit or similar providing at least details of the Australian proceedings, the relevant debt, details of the overseas debtor. There may be some other local matters to tend to as well.

Enforcing a foreign judgment in Australia

The Foreign Judgments Act 1991 (Cth) provides for the recognition and enforcement of foreign judgments in Australia.

To be enforceable, the foreign judgment must generally:

  • be less than 6 years old;
  • require the payment of money;
  • be final and conclusive (even if subject to or likely subject to an appeal); and
  • not have already been satisfied in the foreign jurisdiction.

Which countries have reciprocal arrangements?

The statutory schemes only apply to countries that have entered into reciprocal arrangements with Australia for the enforcement of each other’s judgments (See Schedule to Foreign Judgments Regulation 1992).

This includes British Virgin Islands, Cayman Islands, Fiji, France, Germany, Italy, Israel, Korea, Japan, Korea, Papua New Guinea, Singapore, Sri Lanka, Switzerland and the United Kingdom.

It does not include China (although technically Hong Kong is included), India, Russia or the United States of America.

New Zealand has special arrangements as set out below.

New Zealand arrangements

Part 7 of the Trans-Tasman Proceedings Act 2010 (Cth) allows New Zealand judgments of a broader nature to be enforced in Australia including some judgments that don’t solely relate to the payment of money.

This excludes things like probate, guardianship, and the welfare of minors.

Enforcement

Registration of the foreign judgment can be as simple as filing  an application in a Supreme Court, where a judge will process the application (assuming it meets the requirements) in chambers in the absence of the other party and register it as a judgment in that court. The judgment debtor must be served with notice of the registration when the judgment is registered.

The registered foreign judgment can then be enforced like any other judgment such as by way of:

FURTHER INFORMATION

For further information in relation to enforcing a judgement, debt recovery, litigation or any other commercial law matter, contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn Facebook Twitter | Instagram

Do you have any Unclaimed Money?

In New South Wales, any unclaimed money is generally held by the Revenue NSW.

Unclaimed money is generally any amount in excess of $100 held for at least 6 years without any activity on an account. This may be because the owner moved, changed their name or simply forgot about it.

Types of unclaimed money held by Revenue NSW include dividends, unpresented cheques, distributions, sale proceeds, commissions, royalties and the like.

Generally, enterprises that operate in NSW and hold unclaimed money as at 30 June in any year must submit the money to Revenue NSW by 31 October of that year, after having made reasonable attempts to contact the rightful owner and return the money to them.

Other thresholds and timeframes apply to specific industries such as real estate agents, law firms and trustee companies that operate trust accounts.

You can search for money held by Revenue NSW here.

Unpaid wages

Sometimes an employer owes wages to an employee who has left their business or where wages have found to be underpaid following a workplace audit.

Where the employee can’t be contacted, the unpaid wages are generally held by the Fair Work Ombudsman and can be searched for here.

Superannuation

Superannuation funds that cannot locate beneficiaries of superannuation monies place the details on the Superannuation Lost Members Register, which can be searched through the MyGov portal via Australian Taxation Office’s website here.

Banks and life insurers

Banks, credit unions and life insurance companies also have unclaimed money issues where a bank account is inactive (has no deposits or withdrawals) for 7 years or where the proceeds of a life insurance policy is unclaimed for 7 years after the policy matures.

Where they can’t locate an owner of funds held, they must lodge their unclaimed monies with the Australian Securities & Investments Commission.

Unclaimed money received by ASIC is transferred to the Commonwealth of Australia Consolidated Revenue Fund and it is available to be claimed at any time by the rightful owner and there is no time limit on claims. ASIC’s unclaimed money search is located at ASIC’s MoneySmart website here.

FURTHER INFORMATION

For further information in relation to unclaimed money or any business related legal issues, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn Facebook Twitter | Instagram

Coronavirus: Insolvency and Bankruptcy Changes

The financial effects of the COVID-19 pandemic are starting to be felt by many businesses with debts remaining unpaid for longer and those that may have limped through until now starting to have liquidity or cashflow problems.

If you or your business are considering options for debt recovery from customers, note that during the pandemic period (24 March – 25 September 2020 or any longer period prescribed by Regulations*), the laws regarding insolvency and bankruptcy in Australia have been varied by Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) such that when enforcing debts, the following have changed from the usual arrangements:

Bankruptcy Notices

The temporary measures to the operation of the Bankruptcy Act 1966 (Cth) and its Regulations introduced by the federal government include:

  • the minimum amount of a judgment debt required for the issue of a Bankruptcy Notice has increased from $5,000 to $20,000; and
  • the recipient individual’s time to pay or respond has increased from 21 days to 6 months.

Once a Bankruptcy Notice expires without being met an “act of bankruptcy” will have occurred and, as usual, the creditor that issued it can commence court proceedings to seek a sequestration order to bankrupt the individual.

Other changes include those in relation to the moratorium period for those that submit a declaration of intention to present a debtors petition for their own bankruptcy

Creditor’s Statutory Demands

The temporary changes affecting the Corporations Act 2001 (Cth) and its Regulations in relation to corporate debts include:

  • the threshold amount of debt/s required for the service of a Creditor’s Statutory Demand has increased from $2,000 to $20,000; and
  • the recipient company’s time to pay or respond has increased from 21 days to 6 months.

Once a statutory demand expires without the debt being paid or an arrangement for the payment of the debt being agreed, the creditor can commence court proceedings to wind up the debtor company.

Director liability for insolvent trading

Similar changes have also been made to laws regarding director liability for insolvent trading where the debts are incurred in the ordinary course of business (temporarily supplementing existing “safe harbour“provisions).

The above changes do not affect other enforcement measures such as: winding up companies on the ‘just and equitable‘ ground; garnishee orders; or writs for the levy of property.

The Schedule 12 changes relate only to those Bankruptcy Notices issued in the relevant period and those Creditor’s Statutory Demands served in the relevant period, not those issued or served (as the case may be) prior to 24 March 2020.

(*Note on 07 September 2020, the Federal Government extended these measures until 31 December 2020).

FURTHER INFORMATION

For further information in relation to debt recovery, bankruptcy, insolvency or any other commercial law matter, contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn Facebook Twitter

Uncollected goods: is possession 9/10 of the law?

If you are a business that cleans or repairs items that are never collected by a customer or if you are a lessor of a commercial property* and a tenant leaves items behind, you may wonder what your rights and obligations are in relation to those uncollected goods.

Is possession 9/10 of the law? Well, sort of. Often it can depend on the terms of trade agreed between the business and the customer (for example a retention of title clause, a lien** or other similar provisions), but assuming it hasn’t been agreed or if there are agreed terms but there is no unpaid account, what is the position?

If there is no contract to govern what happens then the Uncollected Goods Act 1995 (NSW) will likely apply. That Act allows the business holding the goods (bailee) to sell them if they are uncollected by the owner of the goods (bailor) or if the bailee can’t contact the bailor.

How the goods may be disposed of, and what notice needs to be given, depends on their type and value.  For example, if the goods are worth:

  • less than $100, the business owner needs to give the customer 28 days verbal or written notice of an intention to dispose of the goods. If the customer doesn’t respond or collect the goods in that time, the business owner can dispose of them they see fit;
  • more than $100 but less than $500, the business owner needs to give the customer and each other person that claims an interest in the goods 3 months written notice of an intention to dispose of them. If the customer doesn’t respond or collect them within 3 months, the business owner can dispose of them by private sale for ‘fair value’ or public auction;
  • more than $500 but less than $5,000 the business owner needs to give the customer and each other person that claims an interest in the goods 6 months written notice of an intention to dispose of the goods. If the customer doesn’t respond or collect them in the 6 month period, the business owner can dispose of them by public auction provided that the business owner publishes a copy of the notice in a daily newspaper circulating generally throughout NSW at least 28 days before the 6 months notice is to end;
  • more than $5,000, the business owner needs a Court order to dispose of the goods; and
  • Perishable goods are dealt with differently any only require a ‘reasonable’ amount of notice, the length of which depends on the nature and condition of the goods.

What should the notice state?

Broadly speaking, a notice regarding uncollected goods must include:

  • the business name;
  • a description of the goods;
  • an address where the goods can be collected;
  • a statement of any relevant charges (eg freight and storage costs) and if the business is planning to take money out of the sale to cover those charges;
  • a statement that on or after a specified date, the goods will be sold or kept unless they are first collected and the relevant charges are paid.

No profit

When the goods are sold, the bailee can only recover the cost of the original service being provided if unpaid, the costs of the sale and any maintenance, insurance and storage costs. The bailee is not allowed to make a profit on the sale of the uncollected goods.

Any surplus if the bailor can’t be found or won’t take it, must be paid, as unclaimed money, to Revenue NSW. What a pain!

* There is specific legislation relating to the disposal of goods held by a pawnbroker (Pawnbrokers and Second-Hand Dealers Act 1996 (NSW), Part 4, s.30), goods left by a tenant (Residential Tenancies Act 2010 (NSW), Part 6 Division 2) or resident of a retirement village (Retirement Villages Act 1999 (NSW), Part 9, Division 7). Some assets can require additional steps to dispose of such as motor vehicles (for example the Commissioner of Police has issued a certificate stating that the vehicle is not recorded as stolen) and may require a Personal Property Securities Register Search.

** A lien is a common law right to retain possession of an item until an account is paid (such as a mechanics lien to keep a car until the repair bill is paid for), but it can be confirmed in an agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to uncollected goods, your rights or obligations under a contract or arrangement or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

Stay up to date - LinkedIn Facebook Twitter

 

Coronavirus: Commercial Tenancies Code

Further to our COVID-19 blogs on the Federal Government led arrangements on employee standdownsnegotiating changes to commercial leases and the JobKeeper subsidy, the National Cabinet on 07 April 2020 agreed on a mandatory Commercial Tenancy Code previously foreshadowed as part of the “hibernation” strategy for Australia’s economy.

“preserve the lease, to preserve the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… which underpins the value of those assets

The Code applies to tenancies where either the Lessee/Tenant or the Lessor/Landlord is eligible for the JobKeeper program.

The Code is based on a set of leasing principals intended as the Prime Minister says to operate such that it “preserves the lease, preserves the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… that underpins the value of those assets“.

The overarching obligations are for landlords and tenants to work together in an honest, open and transparent manner and to negotiate in good faith on a lease by lease basis so as to mitigate the impact of the Coronavirus on the lease arrangements.

The Leasing Principles themselves include:

  • Landlords must not terminate the lease due to non-payment of rent during the pandemic period*
  • Landlords must not draw on a Tenant’s security (bank guarantee, personal guarantee or cash bond etc) during the pandemic period
  • Tenants must honour the Lease
  • Landlords must reduce rent proportionate to the trading reduction in the Tenant’s business over the course of the pandemic period through a combination of:
    • waivers of rent (accounting for at least 50% of the rental reduction); and
    • deferrals of rent (spread over the remaining time on a Lease and for no less than 24 months)
  • No interest, fees or charged are to be imposed  on the rent waived or deferred
  • Rent increases (other than Retail Leases based on turnover) are frozen during the pandemic period
  • Any statutory or insurance charges passed on to the tenant are to reduced in the appropriate proportion
  • Tenants should have an opportunity to extend the Lease period  of the rent waiver/deferment period
  • A binding mediation process will regulate these co-operative arrangements.

*The pandemic period is from 03 April 2020 and for the period during which the for the period during which the Commonwealth Government’s JobKeeper program remains operational.

To view the Prime Minster’s statement following the National Cabinet meeting here.

The States and Territories will legislate these arrangements as soon as is possible.

Banks are urged to support landlords in a similar manner.

Residential tenancies remain a State and Territory issue, not being determined by the National Cabinet. To register your business’s interest in the JobKeeper system, visit the Australian Taxation Office’s dedicated page.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss how to best deal with commercial tenancy issues, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice.

Please contact McKillop Legal to discuss your legal concerns or objectives.

Stay up to date - LinkedIn Facebook Twitter

Coronavirus – Negotiating changes to commercial leases

Any businesses that are experiencing a downturn as a result of the current economic crisis that has come as a result of the Coronavirus pandemic will know that one of the largest expenses, apart from that of staff, is its leasing of premises. We have another article on options for employers including standing down its workforce.

The Government has introduced a range of measures to assist businesses and employees with the ongoing payment of wages with the JobKeeper program and the National Cabinet has agreed to implement a moratorium on the eviction of commercial and residential tenants for 6 months. This will be implemented by the States and Territories.

The Government has suggested that commercial leasing arrangements are a matter that ought to be discussed and agreed between lessors and lessees as it is a very complicated area of law that affects businesses from sole traders to multinational corporations. There are many advantages of having these discussions, rather than seeking to strictly enforce the terms of the previously agreed leases, including:

  • The lessor can retain the lessee in the premises – this will be important for them after the pandemic ends
  • The lessee will need to continue trading from the premises – either during the pandemic and/or after the restrictions on movement are relaxed.
  • The lessor may have mortgage repayment obligations to its bank and will need some level of cashflow to assist it to do this

Any  discussions between lessors and lessees should, in the first instance, be informal and without prejudice to the written lease obligations.

There is a moratorium on evictions, but there’s not a moratorium on the requirement to pay rents. Landlords/Lessors and tenants/lessees not significantly affected by COVID-19 are expected to honour their lease and rental agreements.

Every business and each premises is different so there is no ‘one size fits all’ answer but points for negotiation could include:

  • changing the amount of rent to be paid for a period (say a reduction in rent of 25% for 6 months)
  • a rent free period or a reduced rent period (for example 3 months of no rent payable)
  • a delay in payment of the rent (same rent is payable but the obligation to pay is deferred to a later time).
  • extension of the term of the lease to accommodate any rental concessions

Any agreement that may be reached should be documented in writing and signed, and it may be that the lease if registered will also need to have any changed also registered on title.

There may be situations where no negotiated solution will work and parties may need to rely on dispute resolution procedures either now or at the end of the moratorium period, noting that the moratorium does not relieve a lessee from the obligations under the Lease, just that they cannot have the lease terminated during the moratorium period.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss negotiating changes to commercial leases or licensing arrangements, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

Stay up to date - LinkedIn Facebook Twitter

COVID-19: McKillop Legal remains open for business

McKillop Legal remains open for business and is fully operational despite the significant and unprecedented challenges facing our families, the Australian economy and our way of life as a result of the Coronavirus/COVID-19 pandemic.

We remain open for business and available to provide advice either by telephone, email or other services (and, if necessary, in person, abiding by the Government’s social distancing guidelines).

Our staff all have the ability to work remotely from home or in other places using our secure technology infrastructure and systems.

If you or your business has any legal issue it requires assistance with, whether relating to your rights or responsibilities relating to business, shutdowns or employment in relation to the pandemic or in relation to other matters, please call or email us and we will be in touch promptly.

Take care.

Page 1 of 212